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Definition
| an organization that comes into being when a person or a group of people decides to produce a good or service to meet a perceived demand. most firms exist to make a PROFIT. |
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Term
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Definition
industry structure in which there are
(1) Many firms with no control over prices
(2) Production of identical / homogeneous products
(3) Free entry / exit |
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Term
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Definition
| undifferentiated products; products that are identical to, or indistinguishable from, one another. |
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Definition
| difference between total revenue and total cost |
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Definition
| amount received from the sale of the product (quantity x price) |
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Definition
(1) out of pocket costs
(2) normal rate of return on capital
(3) opportunity cost of each factor of production |
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Definition
| explicit costs, accounting costs |
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Definition
| full opportunity cost of every input; implicit costs |
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Term
| 3 Decisions All Firms Must Make |
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Definition
(1) how much output to apply
(2) which production technology to use
(3) how much of each input to demand |
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Definition
| rate of return on capital that is just sufficient to keep owners and investors satisfied. (for relatively risk-free firms, it should be nearly the same as the interest rate on risk-free government bonds) |
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Term
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Definition
period of time when:
(1) firm is operating under a fixed scale (fixed factor) of production
(2) firms can neither enter / exit an industry |
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Term
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Definition
period of time when
(1) there are no fixed factors of production––firms can increase / decrease scale of operation
(2) new firms can enter and exit the industry |
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Term
| basis of decision making for firms |
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Definition
(1) market price of output
(2) techniques of production that are available
(3) prices of inputs |
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| optimal method of production |
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Definition
| production method that minimizes cost |
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Term
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Definition
| quantitative relationship between inputs and outputs |
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Term
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Definition
| quantitative relationship between inputs and outputs |
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Term
| labor intensive technology |
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Definition
| technology that relies heavily on human labor instead of capital |
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| capital-intensitve technology |
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Definition
| technology that relies heavily on capital instead of human labor |
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Term
| production function (total product function) |
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Definition
| numerical / mathematical expression of a relationship between inputs and outputs. it shows units of total product as a function of units of inputs. |
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Term
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Definition
| additional output that can be produced by adding one more unit of a specific input, ceteris parabis |
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Term
| law of diminishing returns |
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Definition
| when additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines. |
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Term
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Definition
| average amount produced by each unit of a variable factor of production |
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